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Remedy for our nation’s money woes

History may confirm that the second Iraqi invasion, as unpopular as it still is, was the right thing to do but for the wrong reason.

Likewise, support for additional personal retirement accounts (i.e., privatization of Social Security) may also be the right thing to do for the wrong reason.

Consensus concludes there is a Social Security shortfall but not a crisis unless ignored. Unfortunately, we face other more critical issues, such as unfunded private pension liabilities, state and federal deficits, a weak dollar, an eroding environment, costly homeland security, a weak education system and a health care crisis which includes millions of uninsured … and those are just the biggies!



All of the above are screaming for some fiscal discipline, sustained economic growth and substantial increases in tax revenues. There is also just one weapon, one solution, one elixir that will lead to a stronger economy and our need for higher tax receipts … a powerful and growing global stock market, which is the primary reason that we need personal Social Security accounts right now. Regarding fiscal discipline, it must be a precursor to any long-term financial success.

Both of our major political parties have it right in suggesting we look to the wealthy to pay for most of our many needs. However, they both have it wrong on just how to make it happen. The liberals want to tax the wealthy, which will not work, as skilled advisors can find loopholes in our entangled tax system. The conservatives want to cut taxes for the wealthy and hope for a trickle-down of jobs and more revenue from growth. Sorry, but productivity in the form of technology, independent contractors and foreign outsourcing are permanent trickle alternatives because of all the mandated employee benefits forced upon employers. Also, we can forget about mortgaging more of our future and continued borrowing from foreigners. The costs of both are obscene.




The one and only solution that is capable of satisfying our voracious appetite and meeting the goals of most Americans and politicians on both sides of the aisle is to encourage the wealthy to willingly pay more taxes . . . and that can only be done by feeding them more wealth just as we did in the ’90s.

The source of wealth I’m talking about comes from the great corporations of the world as measured by global stock markets. The bull market in the late ’90s, thanks to the technology boom and Y2K, generated substantial wealth, high tax revenues from nonpension gains and surpluses across the land. Granted, some of it was bogus based upon hopeful potential, but it lit the path of prosperity … brightly, I might add, for those who rebalanced investment portfolios at the turn of the century.

Last time I checked, principles such as dollar-cost-averaging, supply and demand, and more buyers than sellers have not been rescinded. Combine these principles with increased equity ownership and the bond market will handle the conversion costs of a new Social Security alternative.

One of the drivers of such economic, tax and financial success must be volume. It should be possible to entice a consortium of strong insurance companies to provide guarantees. For example, using an appropriately diversified global portfolio, investors would be assured of at least earning what the real return would have been from the existing Social Security program if held for 20 to 25 years. Insurance companies now offer something similar for annuities and it could result in substantial participation.

The faulty footings of failure are our past, our pride and our biological tendency to panic first and think second when faced with an emergency, either real or imagined. If we will just acknowledge our weaknesses and seek some help, we can avoid panic reactions, build some taxable and retirement wealth, and continue to support and encourage global economic success while paying for our many important and pressing issues.

Remember, the wealthy are the goose, so don’t give them one. Instead, feed them the peerless elixir of a long and strong global bull market, and they will lay golden eggs at the feet of our many financial challenges.

The alternatives are higher taxes, mediocrity and the nursing of our many red and blue bruises … all for the wrong reasons, of course.

ooo

Richard W. Farwell lives in Penn Valley. He is a Certified Financial Planner, and author of “HOW FLAT IS YOUR reTIREment?”


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